Woman to join board of troubled American Apparel

American Apparel

Andrew Burton, Getty Images

American Apparel has lost nearly $270 million in the last four years and is more than $200 million in debt. In March, it sold $28.6 million in stock to meet debt obligations. Above, a company store in New York City.

American Apparel has lost nearly $270 million in the last four years and is more than $200 million in debt. In March, it sold $28.6 million in stock to meet debt obligations. Above, a company store in New York City. (Andrew Burton, Getty Images)

The Los Angeles retailer, known for racy ads featuring scantily clad models, disclosed the names of four new board members, including the first woman in the history of the company.

The board shake-up is part of a deal with New York investment firm Standard General, which recently extended American Apparel a $25-million financial lifeline.

Standard General controls a nearly 44% stake in the Los Angeles retailer through a cooperative buying arrangement with ousted Chief Executive Dov Charney.

The proposed directors include RadioShack Corp. Chief Executive Joseph Magnacca and Thomas J. Sullivan, the managing partner of a financial advisory firm. The female director is Colleen B. Brown, who had previously served as the chief executive of media firm Fisher Communications. David Glazek, a partner at Standard General, will also join the board.

It's a good public relations move in the eyes of people that thought Dov Charney was disrespecting women— Ronnie Moas, the founder of Standpoint Research

American Apparel is acknowledging in its board choices the need for more female influence after years led by Charney, who has been dogged by allegations of misconduct with employees and sexual harassment lawsuits, observers said.

“It's a good public relations move in the eyes of people that thought Dov Charney was disrespecting women,” said Ronnie Moas, the founder of Standpoint Research. “You are moving away from the culture that they had under his watch and taking the company in a more serious direction.”

Glazek said the board would work “to leverage the company's strong brand” for American Apparel shareholders, employees and creditors.

American Apparel Inc. is getting a financial lifeline from its largest shareholders in an agreement that could leave founder Dov Charney out in the cold.

The Los Angeles retailer has signed a deal that will bring in up to $25 million in cash from New York investment firm Standard General, enabling...

American Apparel Inc. is getting a financial lifeline from its largest shareholders in an agreement that could leave founder Dov Charney out in the cold.

The Los Angeles retailer has signed a deal that will bring in up to $25 million in cash from New York investment firm Standard General, enabling...

(Shan Li)

“This slate of directors brings significant financial, retail and corporate turnaround expertise to the board,” Glazek said in a statement.

Some analysts expressed doubt that the new board members have sufficient retail experience or turnaround talent to save troubled American Apparel.

“This is not exactly what I call an all-star lineup,” said Lloyd Greif, the chief executive of investment banking firm Greif & Co. “This is not the inspired board choices you would have hoped to see.”

Brown, who climbed the ranks in the media world, has no deep retail experience. She started her career at news company Gannett Co. in 1980, according to a bio from Seattle University, where she mentors students. As chief executive of Fisher Communications, she was credited with turning around the Seattle company before its sale to Sinclair Broadcast Group.

The only seasoned retail executive among the four new directors is Magnacca, who has served as chief executive of RadioShack since February 2013.

But in his time as head of RadioShack, the retailer has continued to lose money and struggle to survive a brutal environment for brick-and-mortar consumer electronics companies. Standard General also owns a nearly 10% stake in RadioShack.

As part of the agreement, Charney and four members of the board are resigning. David Danziger and Allan Mayer will remain; they took on the joint role of co-chairmen after Charney was voted out as chairman and suspended as CEO on June 18 for alleged misconduct.

The directors, who can be seated 10 days after the Wednesday announcement per government regulations, will be faced with turning around a host of financial problems at the retailer.

American Apparel has lost nearly $270 million in the last four years and is more than $200 million in debt. In March, it sold $28.6 million in stock to meet debt obligations.

The company will owe bondholders $13.5 million in interest in October.

“There is no guarantee that any one person or two people they bring in will be able to straighten out the situation,” analyst Moas said. “That's quite a hurdle you have to get over.”

Standard General still retains the ability to choose a director to fill the final empty board seat. A special committee of the board will determine Charney's fate.

He has agreed to work as a paid consultant for American Apparel pending the results of an investigation into his personal behavior.

The investigation carried out by FTI Consulting is ongoing. The company board cited many cases of misconduct when ousting him last month, including his alleged misuse of company funds and allowing the posting online of nude photos of a former employee who was suing him.

As part of the deal, Standard General agreed to provide up to $25 million in financial assistance to the beleaguered retailer.

Up to $15 million of that help remains after the investment firm bought a nearly $10-million loan that had been called in early from lender Lion Capital.

The deal saved American Apparel from a potential default on the Lion Capital loan.

That could have triggered repayment demands on additional debts, including a $30-million loan from Capital One and $206 million in senior secured notes.

Standard General also plans to help the company improve operations, including investing more in e-commerce and expanding stores domestically and internationally.